ETF Flopper: Turkey Stocks Eat It


Turkey stocks reflected rising tensions with its neighbor Iraq, whose government escalated its confrontation with its northern Kurdish region on Wednesday. More than 92% of voters Iraqi Kurds backed independence in a referendum to which Prime Minister Haider al-Abadi responded by threatening to deploy troops there, take oil fields, and shut down international flights to and from the area. Turkey said it would cut crude exports from Iraq.

The $383 million iShares MSCI Turkey exchange-traded fund (ticker: TUR), which was among Tuesday’s best performers, landed in the bottom ranks on Wednesday. It notched a greater than 3% decline.

As this blog noted yesterday, Bank of America Merrill Lynch‘s Turkey economist Ferhan Salman thinks economic growth will be constrained next year due to tighter monetary and fiscal policy. He wrote:

The CBT is likely to keep the effective funding rate tight in the near term until there is a convincing decline in inflation (measured through core inflation, diffusion indices, and expectations). However, persistent inflation pressures will continue to delay expected easing through the Effective Funding Rate (EFR), which will be positive for the TRY. This also implies that liquidity conditions would continue to limit monetary base growth and deposit creation. This, in turn, would constrain credit extension, as the major funding base is likely to rely on deposits while some capital injection could also help relieve pressures on funding.

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